South Africa: The Draft Companies Amendment Bill

The draft Companies Amendment Bill ('Bill') has been
released by the Department of Trade and Industry on its website,
but as at the date hereof, the final version of the Bill has not
been published in the Government Gazette.

The Bill proposes to effect various amendments to the new Companies
Act 71 of 2008 ('new Act'). Many of these amendments are
aimed at correcting drafting anomalies and errors. There are
however some substantive amendments being proposed and some of the
key changes in the Bill which will affect companies in practice are
summarised below.

SHAREHOLDER AGREEMENTS

The new Act provides (i) that the Memorandum of Incorporation (MOI)
of a company must be consistent with the new Act and (ii) that
shareholder agreements must be consistent with the new Act and the
MOI. Any provisions which are inconsistent are void to the extent
of the inconsistency.

The new Act does provide for a transitional period of two years
after the new Act comes into effect for companies to bring their
MOI (in effect their existing articles of association and
memorandum of association) in line with the new Act, but a similar
provision in relation to shareholder agreements does not appear in
the new Act.

The Bill now provides for a similar two year transitional period to
bring shareholder agreements in line with the provisions of the new
Act and the MOI. This is a useful amendment from a practical
perspective as it is current practice in South Africa to regulate
the relationship of shareholders in companies in shareholder
agreements, and companies will have to make use of this
dispensation during the two year transitional period.

SPECIAL RESOLUTIONS

The new Act provides that:

more than 50% of voting rights are required for the adoption of
an ordinary resolution (this percentage can be adjusted upwards in
the MOI); and

at least 75% of voting rights are required for the adoption of
a special resolution (this percentage can be adjusted downwards in
the MOI).

A margin of at least 10% must be kept between the percentage
requirements for approval of ordinary and special
resolutions.

The proposed amendment contained in the Bill will allow a
company's MOI to adjust the percentage for special resolutions
to a higher or lower percentage. This means that the MOI may
determine the percentage requirement for special resolutions to be
up to 100%. Due to the required 10% difference, this means that the
percentage requirement for ordinary resolutions cannot be higher
than 90%. It is important to note that these adjustments can be
made in relation to specified matters, and therefore it creates an
important new way in which the rights of minority shareholders can
be protected.

FOREIGN COMPANIES

The new Act requires foreign companies to register with CIPRO as
branch companies if they "conduct business or non-profit
activities" in South Africa, but the factors provided to
determine whether they do so are extremely wide in ambit and could
lead to many foreign companies which do not conduct continuous
business in South Africa having to register as branch companies in
South Africa.

The Bill proposes a much narrower test to determine which foreign
companies should register, namely (i) where the company is a party
to one or more employment contracts within South Africa or (ii) has
engaged in activities which would lead to the conclusion that the
company intends to conduct continual business or non-profit
activities in South Africa for a minimum period of 6 months.

DISSENTING SHAREHOLDERS

The new Act provides relief for shareholders where specified
takeover activity is being proposed in relation to a company.
Dissenting shareholders may (i) require a company to seek court
approval for implementation of the proposed transaction if it was
opposed by at least 15% of the votes excercised on the proposing
resolution and (ii) (regardless of shareholding or votes against
the resolution) apply to court for a review of the transaction if
certain requirements are met.

The problem in this regard is that the new Act does not provide any
limitation on the time within which a shareholder may challenge the
proposed transaction, and this could clearly affect the
implementation of transactions and lead to great uncertainty.

The Bill now provides such time limitations, namely that
respectively five and 10 business days after the resolution was
approved, shareholders must take the relevant steps to initiate
court proceedings in the two instances set out above.

BUSINESS RESCUE

The new Act contains "debtor friendly" Business Rescue
provisions, in terms of which a "practitioner" can be
appointed to attempt to revive a financially ailing company. The
new Act gives wide powers to the practitioner which include the
power to cancel or suspend (in whole or in part) agreements to
which the company is a party. This provision caused widespread
concern that the business rescue practitioner could pick out
agreements or parts of agreements that were favorable to the
company, to the extreme prejudice of creditors.

The Bill makes the practitioner's power to cancel agreements
subject to court overview and he/she will have to demonstrate that
the cancellation is on terms that are just and reasonable in the
circumstances. In addition, the business rescue practitioner's
powers to suspend the company's obligations are limited (i) to
the duration of the business rescue proceedings and (ii) in
relation to agreements whereby security has been granted by the
company.

CONCLUSION

Parliamentary hearings on the Bill are still to take place and will
likely have the effect of delaying the targeted date of
implementing the new Act by October 2010, although it is still
possible that it will come into effect later this year.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…“The articles are extremely timely and highly applicable”“I often find critical information not available elsewhere”“As in-house counsel, Mondaq’s service is of great value”

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here

If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you
are granted a non-exclusive, revocable license to access the Website under its
terms and conditions of use. Your use of the Website constitutes your agreement
to the following terms and conditions of use. Mondaq Ltd may terminate your use
of the Website if you are in breach of these terms and conditions or if Mondaq
Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to
read the full text of the content and articles available (the Content). You may
not modify, publish, transmit, transfer or sell, reproduce, create derivative
works from, distribute, perform, link, display, or in any way exploit any of the
Content, in whole or in part, except as expressly permitted in these terms &
conditions or with the prior written consent of Mondaq Ltd. You may not use
electronic or other means to extract details or information about Mondaq.com’s
content, users or contributors in order to offer them any services or products
which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the
suitability of the information contained in the documents and related graphics
published on this server for any purpose. All such documents and related
graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or
its respective suppliers hereby disclaim all warranties and conditions with
regard to this information, including all implied warranties and conditions of
merchantability, fitness for a particular purpose, title and non-infringement.
In no event shall Mondaq Ltd and/or its respective suppliers be liable for any
special, indirect or consequential damages or any damages whatsoever resulting
from loss of use, data or profits, whether in an action of contract, negligence
or other tortious action, arising out of or in connection with the use or
performance of information available from this server.

The documents and related graphics published on this server could include
technical inaccuracies or typographical errors. Changes are periodically added
to the information herein. Mondaq Ltd and/or its respective suppliers may make
improvements and/or changes in the product(s) and/or the program(s) described
herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally
identifies you, including what sort of information you are interested in, for
three primary purposes:

To allow you to personalize the Mondaq websites you are visiting.

To enable features such as password reminder, newsletter alerts, email a
colleague, and linking from Mondaq (and its affiliate sites) to your website.

Mondaq (and its affiliate sites) do not sell or provide your details to third
parties other than information providers. The reason we provide our information
providers with this information is so that they can measure the response their
articles are receiving and provide you with information about their products and
services.

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to
view the free information on the site. We also collect information from our
users at several different points on the websites: this is so that we can
customise the sites according to individual usage, provide 'session-aware'
functionality, and ensure that content is acquired and developed appropriately.
This gives us an overall picture of our user profiles, which in turn shows to
our Editorial Contributors the type of person they are reaching by posting
articles on Mondaq (and its affiliate sites) – meaning more free content for
registered users.

We are only able to provide the material on the Mondaq (and its affiliate
sites) site free to site visitors because we can pass on information about the
pages that users are viewing and the personal information users provide to us
(e.g. email addresses) to reputable contributing firms such as law firms who
author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us
not to disclose your details to any of these parties, please tick the box above
or tick the box marked "Opt out of Registration Information Disclosure" on the
Your Profile page. We and our author organisations may only contact you via
email or other means if you allow us to do so. Users can opt out of contact when
they register on the site, or send an email to unsubscribe@mondaq.com with “no
disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate
registration form. This is a personalised service where users choose regions and
topics of interest and we send it only to those users who have requested it.
Users can stop receiving these Alerts by going to the Mondaq News Alerts page
and deselecting all interest areas. In the same way users can amend their
personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an
identifying user number. The cookies do not contain any personal information
about users. We use the cookie so users do not have to log in every time they
use the service and the cookie will automatically expire if you do not visit the
Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to
personalise a user's experience of the site (for example to show information
specific to a user's region). As the Mondaq sites are fully personalised and
cookies are essential to its core technology the site will function
unpredictably with browsers that do not support cookies - or where cookies are
disabled (in these circumstances we advise you to attempt to locate the
information you require elsewhere on the web). However if you are concerned
about the presence of a Mondaq cookie on your machine you can also choose to
expire the cookie immediately (remove it) by selecting the 'Log Off' menu option
as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example,
advertisers). However, we have no access to or control over these cookies and we
are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement,
and gather broad demographic information for aggregate use. IP addresses are not
linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or
its affiliate sites) are not responsible for the privacy practices of such other
sites. We encourage our users to be aware when they leave our site and to read
the privacy statements of these third party sites. This privacy statement
applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or
contests. Participation in these surveys or contests is completely voluntary and
the user therefore has a choice whether or not to disclose any information
requested. Information requested may include contact information (such as name
and delivery address), and demographic information (such as postcode, age
level). Contact information will be used to notify the winners and award prizes.
Survey information will be used for purposes of monitoring or improving the
functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our
site, we ask them for the friend’s name and email address. Mondaq stores this
information and may contact the friend to invite them to register with Mondaq,
but they will not be contacted more than once. The friend may contact Mondaq to
request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’
information. When users submit sensitive information via the website, your
information is protected using firewalls and other security technology. If you
have any questions about the security at our website, you can send an email to
webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode),
or if a user no longer desires our service, we will endeavour to provide a way
to correct, update or remove that user’s personal data provided to us. This can
usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will
post those changes on our site so our users are always aware of what information
we collect, how we use it, and under what circumstances, if any, we disclose it.
If at any point we decide to use personally identifiable information in a manner
different from that stated at the time it was collected, we will notify users by
way of an email. Users will have a choice as to whether or not we use their
information in this different manner. We will use information in accordance with
the privacy policy under which the information was collected.

How to contact Mondaq

If for some reason you believe Mondaq Ltd. has not adhered to these
principles, please notify us by e-mail at problems@mondaq.com and we will use
commercially reasonable efforts to determine and correct the problem promptly.

By clicking Register you state you have read and agree to our Terms and Conditions